1. These two rules relate to convictions under Section 92 (5) of the Indian Companies Act (VII of 1913).
2. In No. 648 the petitioner as representing the Bengal Miscellany, Ltd., a Company registered under the Act, and in No. 649 the Petitioner as Secretary thereof, has been so convicted for issuing an advertisement in a daily newspaper named ' Forward ' on the 24th June, 1924 without filing a copy thereof with the Registrar of Joint Stock Companies for registration on or before the date of its publication, as-required by the Act.
3. The ground upon which the convictions are challenged put shortly, is that the advertisement in question is not a prospectus within the meaning of the Act but specifically refers to a prospectus, copy whereof had admittedly been already filed with the Registrar of Joint Stock Companies. It is urged that if the prospectus of the Company has already been filed with the Registrar as it has been on the 2nd September, 1921, and the advertisement already refers to the prospectus and states the facts that it has been so filed, it is not necessary under the law to file a copy of the advertisement with the Registrar for there would be no object in doing so; and it is further urged that if a copy of this advertisement had beau attempted to be filed it would not have been accepted as it does-not contain the particulars necessary under Section 93 of the Act.
4. The offending matter in this case is an advertisement offering to the public some shares of the Company for sale. It therefore clearly comes) within the definition of ' prospectus ' as contained in Section 2, Clause (14) of the Act. The definition runs thus: 'Prospectus means any prospectus, notice, circular, advertisement or other invitation offering to the public for subscription or purchase of any shares or debentures of a Company.' Then under Section 92 the filing of a prospectus is obligatory and the particulars to be set out therein are given in detail in the said section as also in Section 93. A reference to the different sections of the Act makes it abundantly clear that the provisions relating to a prospectus are most stringent and the duty of preparing it and filing it in accordance with law is extremely onerous. Upon the plain words of the statute I can see nothing which relieves the Company from filing a copy of an advertisement of this nature with the Registrar before issuing it.
5. At first sight, however, the petitioner's contentions seem plausible and it seems-superfluous and unnecessary that a copy of the advertisement should be filed when the prospectus itself has already been filed. It strikes me as meaningless that a Company should be required to file a copy of every advertisement that it issues in the newspapers inviting the purchase of its shares when the advertisement specifically refers to a prospectus, copy of which, it says, is available to an intending purchaser of shares on application, and copy of which, it says, has been duly filed; and furthermore if the Company had filed a copy of the advertisement in the shape in which it was issued it could not have been accepted by the Registrar. The policy of the law, however, is entirely different, and on a careful study of it I am satisfied that it is neither unreasonable nor unjust.
6. The obligation of persons who cause a prospectus to be issued was laid down by Kindersley, V. C., in the case of The New Brunswick & Canada Ry. Co. v. Muggeridye (1860) 1 Dr. & Sm. 363 in these words: 'Those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares, on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent or quality of the privileges and advantages which the prospectus holds out as inducement to take shares.' In the case of Henderson v. Lacon (1867) 5 Eq. 249, Page Wood, V. C., observed thus with reference to the dictum above quoted: 'I must say I think the result of all the oases which have occurred shows the great value of that golden legacy, if I may so term it, which has been left to us by Sir Richard Kindersley, who has condensed in few words the whole doctrine as to the rule of conduct between share holders and their directors, in the case of The New Brunswick & Canada Ry. Co. v. Muggeridye (1860) 1 Dr. & Sm. 363, a ease cited with approbation in the case of The Central Ry. Co. of Venezula v. Kish (1867) L.R. 2 H.L. 113, in the House of Lords.'
7. Where there is deviation from this rule complications arise and give rise to actions of deceit or actions to obtain rescission on the ground of misrepresentation, instances of which the books abound in. To avoid; these complications and to safeguard the interest of the Company as also of those who choose to deal with it, the legislature has made previsions for the full disclosure of all material facts and laid down certain statutory particulars which have got to be disclosed.
8. It is obvious that the preparation of a prospectus necessitates the greatest care; while an attractive statement of the advantages offered is justly permissible, every statement made should be an honest one, no ambiguous phraseology unfair reservation or half truths should be allowed to be used or to creep in. On a reference to the sections mentioned above, together with some of the other sections of the Act, e.g., Sections 81 and 100, it is clear that one of the chief aims of the legislature has been to secure the fullest disclosure of all-material and essential particulars as to the state of affairs of a Company and lay the same in full view of all intending purchasers of its shares or participation in its profits. With that object the legislature has provided that any invitation to the public for that purpose should be subject to the scrutiny of the authorities. It has therefore been enacted in Section 92 of the Act that an advertisement of the nature which forms the subject-matter of the present cases should be placed before the Registrar by filing a copy of it before it is issued-and it has also provided that in-order to be so filed it must contain essential particulars such as are mentioned in Section 93. That this is so also appears from Sub-section (2) of Section 93 which makes some exemptions in case of newspaper advertisements, and Sub-section (3) of that section which makes the section inapplicable to a circular or notice inviting existing members or debenture-holders of a Company to subscribe either for shares or for debentures. It is clear that an advertisement in the shape in which it has been published would not have been accepted by the Registrar as satisfying the requirements of Section 93: but that only means that it should not have been issued.
9. Our attention has been drawn to a passage in Stiebel's Company Law and Precedents, Second Edition, Vol. I, p. 258 foot-note, which is in these words:
Sometimes one sees in newspapers advertisements issued by companies which propose to issue shares, which do not contain the statutory requirements and state that the publication is for information only and that applicants must apply to the Company for the full prospectus; such advertisements should never contain an application form, but they do not appear to be contrary to the Act.
10. No authority is cited in favour of this proposition; and in any case the present prospectus does not fall within that category, for it does not state that the publication is for information only, nor does it say that the applicants must apply to the Company for the full prospectus, but only that the prospectus may be obtained on application.
11. I am accordingly of opinion that the convictions are correct and the Rules should be discharged.
12. I agree.